Sears Holdings Corporation's
(NASDAQ:SHLD) nearly 6% plunge in today's session has put players circling, with the bearishly slanted options trading at more than five times the average intraday pace for puts. A group of these speculators are betting on this dreary price action to continue through week's end, and are scooping up SHLD's 1/11 39-strike puts. Of the roughly 1,200 contracts that have traded here as of 12 p.m. EST, 92% have gone off at the ask price, implied volatility was last seen 17.6 percentage points higher, and only 48 positions currently make up open interest, pointing to buy-to-open activity.
By purchasing these out-of-the-money puts for a volume-weighted average price (VWAP) of $0.46, traders will begin to profit with each step south of $38.54 (strike price minus VWAP) SHLD takes through this Friday's close -- at which point the weekly options will expire. This breakeven level marks a 4.8% drop from current levels.
Today's bearish alignment is par for the course for near-term option traders, as evidenced by the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.54. Not only does this show that put open interest outweighs call open interest among options expiring in three months or less, but it ranks in the 79th percentile of its annual range, suggesting short-term speculators are more put-heavy than usual toward SHLD.
As mentioned, the stock is suffering in today's session after the company revealed its CEO will be leaving for personal reasons. However, today's downtrend only highlights the stock's recent technical struggles. In addition to lagging the broader S&P 500 Index
(INDEXSP:.INX) by almost 35 percentage points during the past two months, the shares have surrendered roughly 41% since hitting their most recent high of $68.77 on November 6.
At last check, the stock was hovering near $40.47 in today's session. Should SHLD fail to breach the $38.55 mark by week's end, the most today's put buyers can lose is the initial premium paid.
This article by Karee Venema was originally published on Schaeffer's Investment Research.
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